Fixing Health Care

The hysterical screaming over health care has reached outlandish new lows. One thing I’ve learned is that policy debates are exactly like political debates: misinformation, exaggeration, outright lies, and bitter hatred for the opposition. This isn’t a good way to transform a $2 trillion chunk of our economy. For posterity, here’s an outline of how to “fix health care”.

There are two problems with health care. First, the cost of the current system is growing so fast it will inevitably force the government, businesses and insurance companies to radically scale back medical services available to most people. Health care rationing already happens now, and it will increase in the future. The second problem is that millions of people are uninsured or underinsured. Those who are insured but fall gravely ill can be dropped from insurance. For most people, insurance is so important that it can prevent them from moving between jobs or starting a business, which makes our capitalist system less efficient. So the two problems are cost and access to health care.

The two sides of the cost issue are producers (hospitals, doctors, drug and tech companies, etc.) and consumers (people, businesses, insurance co. and government). All of these groups blame everyone else for the rise in health care costs. As with most things, everyone is a little bit right. Here’s my short list of causes ranked by significance, plus a quickie solution:

  1. New treatments (drugs, technology, techniques) have extended our lifespan and are definitely worth the money. The latest and greatest stuff is very expensive, though. Solution: Use more generic drugs. Increase gov’t R&D to offset corporate R&D expense. Make FDA approval process much faster and cheaper.
  2. Doctors and hospitals have figured out how to make lots of money by overusing and overcharging for procedures. Solution: Move away from pay-per-procedure in most cases. Issue guidelines for common illnesses. 
  3. Long-term illnesses account for the bulk of medical costs. A big chunk of those illnesses are caused by poor personal behavior (smoking, drinking, obesity). Solution: Integrated, specialized facilities for long-term, high-cost illnesses. Much higher taxes for alcohol. Modestly higher insurance rates for people with poor health habits. Somehow do something about obesity.
  4. Most hospitals are very inefficient. Not just their lack of tech (medical records and more), but their general management and structure. Solution: Hospitals need an incentive to become more efficient. If flat insurance payments are set fairly high then efficient hospitals pocket more as profit. If these payments decline steadily every year, then there’s pressure to improve over time. Publically publish cost metrics for every hospital and area in the country and audit those in the worst 10%.
  5. Insurance companies raise rates quickly because they know businesses are reluctant to switch. (Insurance companies are very profitable. Look at ROE, not bottom-line profit numbers) Solution: Move to individual insurance rather than employer-paid insurance. Remove most state regulations that stifle competition. Most state markets are oligopolies.
  6. Medical malpractice insurance rates are quite high. Malpractice suits cause doctors to perform “defensive medicine”, extra unnecessary tests and procedures to protect them from lawsuits. Solution: Again, not enough competition between insurance companies to lower premiums. Raise standards for legal liability, impose cap on “pain & suffering” payments. State licensing boards should go after doctors with too many lawsuits and remove bad ones promptly.

On the issue of access, the widely quoted numbers on the uninsured are probably wrong. A significant % qualify for Medicaid. Another chunk are young adults who choose not to spend money on insurance. Lower insurance rates due to lower health care costs will help, but there are still many people who can’t afford anything at all. Maybe letting more people into Medicaid (at a slightly higher fee) would reduce the number of “real” uninsured, while a fine structured as a tax credit might motivate those who can afford insurance to go get it.

More changes will be necessary to fix the health care market. Employer provided health insurance should be taxed as income (it is income!). Insurance companies can not turn away new customers, nor can they drop you when you get sick (called rescission, it happens a lot). The current system is so fantastically messed up that there are lots of easy ways to improve it without throwing the whole thing out. If the system doesn’t improve in 10 years, replace it with a European universal system and be done with it.

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